Tax Tip 493: Using the Main Residence to Produce Income and Death and CGT

If the main residence was not used to produce income at the date of the owner’s death it could generally be sold within 2 years without having to pay CGT. The Legal Personal Representative or the beneficiary could sell it CGT free.


But what if it was income producing during the ownership period but this income production ceased prior to death?


Example

Homer has a unit on Oxford Street in Sydney and every New Year’s Eve and Mardi Gras he rents out the second bedroom to party goers. His property is income producing and would not be exempt from CGT if it is sold.


A month after Mardi Gras Homer is found dead on the ground next to the bus stop outside his apartment. He fell off the balcony (or was pushed?).


His son Bart inherits the property and he sells it within 24 months of the death.


Could it be CGT free?


Yes, it potentially could be because the property was not income producing at the time Homer became airborne.


S119-190(4) ITAA97 says


4) If a * dwelling or your * ownership interest in a dwelling * passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate, you ignore any use of the * dwelling for the * purpose of producing assessable income before the deceased's death if:

(a) the dwelling was the deceased's main residence just before the death; and

(b) it was not being used for that purpose just before the death, or any use for that purpose just before the death was ignored because of subsection (3).



See S119-190(4) ITAA97

INCOME TAX ASSESSMENT ACT 1997 - SECT 118.190 Use of dwelling for producing assessable income